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Anyone new to the world of retail foreign exchange trading might not have come across the full range of strategies on offer just yet. But do some reading online about the different strategies available to traders and you’re likely to find that scalping comes to the fore quite often. This particular trading strategy is often described as a good one for newbie forex traders to explore – but is that true? Here’s what you need to think about.
What is scalping?
The term “scalping” is not a particularly pleasant one and evokes all sorts of ideas and images. In foreign exchange trading terms, though, it has a very specific strategic meaning. A scalper places a high volume of very short-term trades – so short, in fact, that they may only last for a few minutes at a time. The objective of doing this is to make a series of small profits by benefiting from short-term fluctuations in price.
Scalping requires the trader to make a high volume of trades simply because the profits on offer – and the frequency with which they appear – are not necessarily very high. That’s because the trader is not benefitting from capital growth, which they might be able to do if they were keeping their positions open for a long period. Scalping, then, can be understood as an attempt to secure a “quick win”. In order to be a successful scalper, several key traits are required.
Discipline and strategy
One of the traits required for a successful career as a scalper is discipline. There’s little point to scalping if traders only stick at it for a short amount of time. That’s because the differential between the buy price and the sell price is doomed to often be negligible. As a result, the trader will need to be able to apply stamina and ensure that they are sticking to their pre-agreed plans.
Linked to the idea of discipline is a keen strategic nous. Scalpers need to make sure that they are able to see the strategic, long-term benefit of what they’re doing. If they take a vague or uncommitted approach, they may find that they don’t make instant profit – and could end up losing focus. Forex Traders’ forex education pages can be helpful here and clear up any misunderstandings.
Time and energy
Some long-term traders find that they manage to secure capital growth over time without having to devote much time and energy to the process on an ongoing basis, even though it requires research and monitoring. Scalpers don’t have that luxury: every trading decision has to be monitored there and then, and it’s not possible to “set it and forget it.”
It may, in some cases, be possible to use robo-trading software to automate a large part of this process –
however, that is not suitable for everyone. Traders are advised to do their research into what robo-trading entails before proceeding. Scalping requires precise decisions to be executed over and over again: unless the trader is certain that their robo-trading software is reliable enough to make decisions on a very regular basis, it may be best avoided. And the same goes for finding a broker. Some brokers don’t accept scalpers, and research is required to find the right one.
Scalping is sometimes misrepresented as a trading strategy that is low risk and can provide steady income with the opportunity to simply close trades when they are not turning profitable, and hence to minimise losses. That isn’t true, and it’s certainly the case that some scalpers lose money over time. For that reason, traders need to ensure that they are not entering the situation without fully understanding that the strategy is far from a “get rich quick” method.
Overall, scalping is not for everyone. It brings some benefits to traders, such as the ability to trade without tying up capital for extended periods – as well, of course, as the frequency of “quick wins” if successful, and all the attendant enjoyment and exhilaration that brings. But other traders might find that the lack of opportunities to benefit from capital growth, as well as the discipline required to stick to what can be a repetitive and even boring strategy, drags them down. After all, this is certainly not a passive investment strategy. By doing your research and finding out how scalping works, though, you’ll soon be able to ascertain whether or not it is the right strategy for your needs.
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